Top fed official 'very concerned' about U.S. economy

NEW YORK (CNNMoney) -- The Federal Reserve's No. 2 just raised a warning flag for the U.S. economy.

Fed Vice Chair Stanley Fischer says America's economy could be sluggish for a very long time. Low interest rates are partly to blame, he believes.

"To the extent that low long-term interest rates tell us that the outlook for economic growth is poor, all of us should be very concerned," Fischer said Monday at the Economic Club of New York.

U.S. economic growth has averaged a sluggish 2% since 2009. Between 1990 and 2005, growth averaged a healthier 3% pace.

And Fischer knows what you're thinking: "Well, if you and your Fed colleagues dislike low interest rates, why not just go ahead and raise them?" he asked rhetorically.

Fischer argues that factors outside the Fed's control -- such as low productivity and aging Baby Boomers -- are holding down interest rates of all kinds. Remember, the Fed's own policy has direct impact on short-term rates, but long-term rates react to more than just the Fed.

The Fed has raised rates once, in December 2015, since putting them at zero in 2008. The Fed is widely expected to hike again this December.

Why Fischer is 'very concerned' about low rates

Low rates spell bad news in Fischer's view for three reasons:

1. Low rates foreshadow sluggish growth.

2. They limit the Fed's options to handle the next recession.

3. They encourage investors to take risky bets. Not good.

Typically during a recession, the Fed cuts interest rates to make it easier to borrow money and spend, which should help stimulate growth. But if rates are already near zero, the Fed can't do much, except put rates into negative territory -- an option it really doesn't want to use.

Being close to zero "limits the room for central banks to combat recessions," by cutting rates, Fischer said. He went on to say the Fed would be in "deep trouble" if a recession hit soon.

Low rates also encourage investors to go into risky investments. The return on a 10-year U.S. Treasury bond -- a super safe asset -- is really low at 1.7%. Knowing they won't get much return on safe assets, investors turn to stocks or high-return bonds in emerging nations.

Why rates are so low

Yes, the Fed cut rates to zero in 2008 but Fischer argues that they're not low because of the central bank.